Now It's UBS' Turn To Slam Bitcoin

Earlier this month, Goldman analysts
took aim at most of the main arguments for why Bitcoin would
succeed.

This morning, it's UBS' turn.

In a new note, a team led by analyst Derek De Vries douses
Bitcoin's potential.

"Bitcoin faces economic, technical and regulatory
challenges as a true currency," UBS says. "Bitcoin's
speculation-driven volatility prevents it from being a stable
store of value or unit of account, and its
semi-fixed supply exacerbates volatility and
deflationary pressure. As a means of exchange,
it already consumes vast computing resources
for relatively few transactions and faces
scaling difficulties. Bitcoin also exists in
something of a regulatory vacuum, or in some
jurisdictions it is restricted or outright banned
(e.g. in China, Russia) – which can be damaging
to trust and sentiment."

While statements from the
financial world have have ranged from
restrained optimism
to the strongly negative, even the most tepidly bullish have
concerns. "No major bank is backing Bitcoin," they
write.

When asked about major Russian search engine Yandex's attempt to
develop an
e-commerce payment system, [Russia-based OAO Sberbank CEO
German] Gref said that 'these experiments must end in one or two
crashes.' Thus, while Bitcoin supporters have found an ally in
Sberbank, the bank's support only appears to go as far as trying
to prevent Russian governmental interference, and not actual
involvement in Bitcoin operations.

Like Goldman, they are more upbeat about the concept — but add
that a third party could separate Bitcoin from its own underlying
technology.

"A bitcoin-like system could provide
enhanced security
and lower costs, by giving users direct control of their funds
and the 'private
key' which is used to ensure security through
encryption. In
principle, this kind of payment system could be developed and put
into use by a third
party – even a (possibly online-only) challenger bank that could
appropriately handle deposits – which could potentially
be a threat to existing banks."